1157972--3/1/2007--DJO

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Risks Related to Our Business We may have difficulty integrating the operations and growing the business of Aircast Incorporated. We intend to pursue, but may not be able to identify, finance or successfully complete, other strategic acquisitions. Weaknesses in our internal control over financial reporting could result in material misstatements in our financial statements. If we do not effectively manage our growth, our existing infrastructure may become strained, and we may be unable to increase sales of our products or generate revenue growth. Changes in the regulatory status of our BGS products could adversely affect the operations and financial results of our Regeneration business. We have outsourced certain administrative functions relating to our OfficeCare and Insurance channels to a third-party contractor and this arrangement may not prove successful. We rely on intellectual property to develop and manufacture our products and our business could be adversely affected if and when we lose our intellectual property rights. If we are not able to develop, license or acquire and market new products or product enhancements we may not remain competitive. We rely heavily on our relationships with orthopedic professionals who prescribe and dispense our products and our failure to maintain these relationships could adversely affect our business. The majority of our sales force consists of independent agents and distributors who maintain close relationships with our hospital and physician customers. We operate in a very competitive business environment. Our quarterly operating results are subject to substantial fluctuations and you should not rely on them as an indication of our future results. Our business plan relies on certain assumptions for the market for our products, which, if incorrect, may adversely affect our profitability. Our business, operating results and financial condition could be adversely affected if we become involved in litigation regarding our patents or other intellectual property rights. We have limited suppliers for some of our components and products which makes us susceptible to supply shortages and could disrupt our operations. Our international sales and profitability may be adversely affected by foreign currency exchange fluctuations and other risks. The direct distribution of our products in selected foreign countries involves financial and operational risks. Our concentration of manufacturing operations in Mexico increases our business and competitive risks. Product liability claims may harm our business if our insurance proves inadequate or the number of claims increases significantly. We may be adversely affected if we lose the services of any member of our senior management team. Any claims relating to our improper handling, storage or disposal of wastes could be time consuming and costly. If a natural or man-made disaster strikes our manufacturing facilities, we will be unable to manufacture our products for a substantial amount of time and our sales will decline. Because we have various mechanisms in place to discourage takeover attempts, a change in control of our company that a stockholder may consider favorable could be prevented. Risks Related to Government Regulation Our failure to comply with regulatory requirements or receive regulatory clearance or approval for our products or operations in the United States or abroad would adversely affect our revenues and potential for future growth. Our products are subject to recalls even after receiving FDA clearance or approval, or after receiving CE-markings, which would harm our reputation and business. If we fail to comply with the FDA s Quality System Regulation, our manufacturing could be delayed, and our product sales and profitability could suffer. If the FDA or another regulatory agency determines that we have promoted off-label use of our products, we may be subject to various penalties, including civil or criminal penalties, and the off-label use of our products may result in injuries that lead to product liability suits, which could be costly to our business. Changes in United States coverage and reimbursement policies for our products by third-party payors or reductions in reimbursement rates for our products could adversely affect our business and results of operations. Changes in international regulations regarding coverage and reimbursement for our products could adversely affect our business and results of operations. Medicare laws mandating new supplier quality standards and conditions for coverage could adversely impact our business. Healthcare reform, managed care and buying groups have put downward pressure on the prices of our products. Proposed laws that would limit the types of orthopedic professionals who can fit, sell or seek reimbursement for our products could, if adopted, adversely affect our business. We may need to change our business practices to comply with healthcare fraud and abuse laws and regulations. Audits or denials of our claims by government agencies could reduce our revenue or profits. Risks Related to our Debt We substantially increased our indebtedness in connection with the Aircast acquisition. Our debt agreements contain operating and financial restrictions, which restrict our business and financing activities. We may not be able to generate sufficient cash to service our indebtedness, which could require us to reduce our expenditures, sell assets, restructure our indebtedness or seek additional equity capital.

Full 10-K form ▸

1157972--3/1/2007--DJO_INC